Counterfeiting, a thriving industry, has
broken out of the confines of luxury goods to spread its poison to everyday
consumer goods such as medicine, toys, clothing, etc. Counterfeit goods
representing 10 to 12% of world sales in 2005 has shot up extensively. Faced
with the extent of this scourge, countries and industries are starting to take
action.
The rapidly changing global economy demands ever-greater vigilance to combat brand piracy, which is currently responsible for losses and has become an ever-increasing issue facing many brand owners today. The gray market activity involves the unauthorised movement of commerce through various geographies by rogue distributors and trusted channel partners alike.
The rapidly changing global economy demands ever-greater vigilance to combat brand piracy, which is currently responsible for losses and has become an ever-increasing issue facing many brand owners today. The gray market activity involves the unauthorised movement of commerce through various geographies by rogue distributors and trusted channel partners alike.
In
India, even as the Federation of Indian Chambers of Commerce and Industry’s
(FICCI) Brand Protection Committee estimates a loss of Rs 200 billion per annum, the media reports
assess the damage to the Indian industry at around Rs 300 billion per annum. It
is no wonder that companies are now taking a hard look at their brand protection
strategies to combat this ever-increasing problem.
Gray Market and Parallel Economy
It refers to a series of illicit activities
that are associated with intellectual property rights (IPRs) infringement. Also
known as `product diversion’ or `parallel importing’, it is a fraudulent activity
that deflates profits of participating distributors, while reducing the revenue
of the brand owner. Counterfeiters capitalise on surplus money, lower
manufacturing costs, fluctuating distribution costs and currency exchange rates
by exporting goods without country specific permission or those of brand
owners.
In this process the prices are undercut and
at par or higher profit margins are attained due to lower cost of production in
the originating countries. This activity disrupts the invisible hand of
competition in a given sales region by keeping purchasers and consumers away
from authorised channels.
Impact on Brand
causes
Loss of Market Share
The
grey market activity spoils business relationships between manufacturers and
their channel partners. In the end, authorised distributors may reduce their
ordering from manufacturers, which ultimately reduces the profits of both
business entities.
Deterioration of
Brand Image
In
the open market customers are not aware that the product has been diverted
through unauthorised means potentially creating issues with warranties and
returns. The imported product from gray market may not have the functionality,
accessories, and features that lead to the customer dissatisfaction towards
brand, creates brand equity issues, quality, packaging, instruction manual,
price, and safety concerns.
Loss of control on
Supply vs Demand
Low
prices as supply goes up causes the genuine channel partners to slow down in
their order patterns from the original manufacturer as he gets more profit on
the product from gray market. This results in conflict in various systems as
inventory planning issues, demand problems within the prevailing distribution
system that ultimately affects product pricing and availability concerns of the
product. It also causes reduction in profit margins and impact of the brand.
Other Concerns
Apart
from these main conflicts gray market creates various issues as negative
customer
experience,
legal and regulatory risks, health issues (Pharmaceutical and FMCG industry faces
the direct impact), and also directly affects the economy. It also creates
factor like surplus inventories, falling of manufacturing and distribution
costs. Brand owners may experience, channel conflict, inventory issues, price
fluctuation, reduced profit and brand erosion concerns.
Steps
to Take
- A comprehensive brand protection strategy against counterfeit activity, infringement of trademark, intellectual property rights, and copyright.
- Regular awareness about brand among internal stakeholders as well as channel partners and other associated partners
- Seeking an external brand protection expert
- Implementing various technologies available for brand protection
- Regular audit of the product, packaging, and gathering feedback from the market
- A compete legal framework
Secure packaging convinces
For everyday consumer goods, secure packaging
is one of the most effective means of prevention. The fight against
counterfeiting operates at three levels and the most effective systems combine
several techniques. The first, public recognition features which are visible to
the naked eye and aimed at consumers, including features such as overt
watermarks, tamper-evident seals and holograms.
The second level features can be detected
with a simple hand-held device and are aimed at those who are need to be aware
of their existence: transport companies, customs agents and retailers. Typical
features can include bubble tags, deformation sensors and invisible pigments.
The final level, known only to a limited few, makes it possible to give a
product unique and distinctive "fingerprint" providing irrefutable
proof of it's authenticity, should a case finally come to court. Among the
latter's technologies are DNA marking, Tagants, rare pigments and NMR.
